Are You Eligible for the New IRS Free Tax-Filing Program?

Preston Hartwick
kali9 / Getty Images
kali9 / Getty Images

Now that tax season is here, are you confused by the variety of tax preparation options available? Choosing between the countless free filing tools and paid tax-prep services can be a daunting task, but a new program launched in 2024 that aims to offer a free and simple tax-filing experience.

The Internal Revenue Service rolled out its new Direct File option in March, but not everyone is eligible Keep reading to find out more about the program and whether it’s the right option for you.

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What Is IRS Direct File?

IRS Direct File is a free tax preparation program that allows eligible users to file their federal income tax returns directly through the IRS. It’s a federal government platform that provides an additional free alternative to paid tax preparation services. The software is offered in both English and Spanish and is available 24 hours a day.

The IRS will pilot Direct File in 12 states, with hopes to expand the program in the following years. Starting Mar. 4, 2024, a limited number of eligible users were able to access the program. It became fully open to all eligible taxpayers on March 8.

What’s the Difference Between IRS Direct File and IRS Free File?

The IRS Direct File program is run solely by the IRS in an attempt to increase access to free tax filing services. It’s currently being piloted for the 2024 tax season and is available only to taxpayers in 12 states.

On the other hand, IRS Free File is available to all taxpayers whose income falls under the $79,000 limit. IRS Free File is a public-private partnership between the IRS and online tax preparation companies that allows certain taxpayers to prepare and file their taxes online for free.

Are You Eligible for IRS Direct File?

Your eligibility for IRS Direct File depends on several factors, including where you live and how much money you make (or your federal income tax bracket). The following breakdown will guide you through the eligibility requirements by section.

1. State of Residence

If you lived in any of the following states for all of 2023 and earned all of your income within that state, you may be eligible for Direct File:

  • Arizona

  • California

  • Florida

  • Massachusetts

  • Nevada

  • New Hampshire

  • New York

  • South Dakota

  • Tennessee

  • Texas

  • Washington

  • Wyoming

Each of these states may have further requirements for eligibility, which can be found through the IRS Direct File eligibility checker.

If you lived in any other state, the District of Columbia or a U.S. territory in 2023, the Direct File program is not currently available to you.

2. Identification

To prevent fraud, the IRS requires the following types of identification. To participate in the Direct File program, you’ll need:

  • An ID.me account

  • A Social Security number or individual taxpayer identification number for yourself and for any claimed spouse or dependents

  • A current driver’s license, state identification, passport or passport card

3. Income

Only certain types of income can be reported through Direct File. This includes the following types of income earned in the 2023 tax year:

  • Income from an employer (Form W-2)

  • Unemployment compensation (Form 1099-G)

  • Social Security benefits (Form SSA-1099)

  • $1,500 or less in interest income or U.S. savings bonds or Treasury obligations (Form 1099-INT, Boxes 1 and 3)

If you’ve received income from other sources, including payment apps, independent contractor work, rent, pension account distributions, unreported tips and more, you can’t use Direct File. Also, if you have any capital gains or losses to report, you might need to look to other filing options. Consider discussing your personal tax situation with a professional if you have questions.

4. Deductions

To use Direct File, you can take only the standard deduction, a set amount that reduces your taxable income. You are not allowed to take itemized deductions when using Direct File.

However, the standard deduction still allows you to deduct student loan interest and educator expenses.

5. Health Insurance

If you buy health insurance through a marketplace like HealthCare.gov or use money withdrawn from a health savings account, Direct File is not available. This ight include any deductions related to FICA taxes, which are included as contributions when you have a health insurance plan through an employer.

Direct File works only for people with:

  • No health insurance

  • Employer-supplied health insurance

  • Medicare

  • Veterans Affairs healthcare

  • Private health insurance paid for out of pocket

  • State Medicaid

  • Children’s Health Insurance Program

6. Credits

You can claim only common credits through Direct File to reduce your taxes or increase your tax refund. Your tax credit options will be limited to:

  • Child Tax Credit

  • Earned Income Tax Credit

  • Credit for Other Dependents

To claim any credits or tax benefits that aren’t listed above, you’ll need to use a different tax-filing option. For example, using another filing method could allow you to claim credits such as:

  • Contributions to retirement plans

  • Higher education expenses

  • Child care expenses

Final Take

While Direct File may not be available for everyone, it’s a great option to help streamline the tax-filing process for some taxpayers. If you live in one of the 12 eligible states and are looking for a simple, free tax preparation tool, give Direct File a try.

This article originally appeared on GOBankingRates.com: Are You Eligible for the New IRS Free Tax-Filing Program?

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